Even before the state fire marshal ordered the Somersworth (N.H.) School District in 2007 to abandon the top two floors of Hilltop Elementary School because of safety concerns, folks in the city of 12,000 had been debating whether the aging facility should be replaced — and how to pay for it.

Finally, in February 2009, despite the grumblings from residents who thought Somersworth couldn't afford it, the city council approved plans to issue $19.9 million in bonds to pay for construction of a new 450-student elementary school.

Three months later, the price tag became a little easier to swallow when the New Hampshire School Building Authority awarded Somersworth $19.9 million in zero-interest Qualified School Construction Bonds, part of the federal government economic stimulus package.

Somersworth is one of many communities whose schools and universities stand to benefit from the stimulus — formally known as The American Recovery and Reinvestment Act of 2009 — that Congress approved to help the U.S. economy regain its health.

"It's going to save us $12 million to $15 million over the life of the bonds," says Karen Soule, superintendent of School Administrative Unit 56, which includes the Somersworth district.

Many avenues to aid

Preliminary versions of the economic stimulus legislation in Congress proposed allocating billions of dollars to pay for school facility upgrades — a version passed by the House called for $16 billion in school construction funding. But after House and Senate negotiators got together to work out differences and craft the final bill, that provision was eliminated from the $787 billion package.

Still, the recovery effort offers schools and universities various subsidies, grants, tax credits and other incentives to alleviate the cost of modernizing and constructing facilities.

Among those:

  • State Fiscal Stabilization Fund

    The U.S. Education Department describes this as a one-time appropriation of about $48.6 billion that the department will award to governors to help minimize and avoid reductions in education and other essential services. In return, a state must commit to pursuing four areas of education reform: making improvements in teacher effectiveness and in the equitable distribution of qualified teachers; establishing pre-K-to-college-and-career data systems that track progress and foster continuous improvement; making progress toward rigorous college- and career-ready standards and high-quality assessments; and providing targeted, intensive support and effective interventions for the lowest-performing schools.

    School systems can use the funds for facility improvements, but the department is discouraging use of the funds for new construction (see the "Yes, you may — but maybe you shouldn't" sidebar).

  • Qualified School Construction Bonds

    The program provides $22 billion of bond authority ($11 billion in 2009 and $11 billion in 2010 for states and school systems. The legislation calls for 40 percent of the authority to go to the nation's 100 largest districts, plus 25 additional systems that the education department determines to be in need. The remaining 60 percent will go to states, using a formula that is based on Title I funding for disadvantaged students. School systems that issue the bonds pay no interest — they repay only the principal.

  • Qualified Zone Academy Bonds

    Schools or districts with 35 percent or more of their students eligible for free or reduced-price lunches have $2.8 billion in zero-interest bonds ($1.4 billion in 2009 and $1.4 billion in 2010) available to be used on school renovations and other educational improvements.

  • Build America Bonds

    These bonds can be issued by state and local governments and will give them access to the conventional corporate debt markets, the U.S. Treasury Department says. The Treasury Department will reimburse the state or local governmental issuer 35 percent of the interest payment. That enables state and local governments to reduce their borrowing costs and reach more sources of borrowing.

  • Impact Aid

    $100 million is available for construction aid to school systems that serve military bases or Indian reservations.

  • Bureau of Indian Affairs School Construction

    $277 million is available — $134 million to replace deteriorating Bureau-funded schools, and $143 million to repair existing facilities.

  • Academic Research Infrastructure

    The National Science Foundation has a $200 million program that will award grants of up to $10 million for repairing or renovating academic research facilities. The foundation is encouraging proposals that will improve shared space where research activities take place as well as facility projects that will promote the development of a diverse workforce.

  • Biomedical and Behavioral Research Facilities

    The National Institutes of Health has $1 billion to award as grants to institutions seeking to construct, renovate or repair biomedical or behavioral research facilities.

  • Research Science Buildings

    The National Institute of Standards and Technology (NIST) will distribute $120 million in grants for construction of scientific research buildings at higher-education institutions and nonprofit organizations. NIST says eligible projects include laboratories, test facilities, measurement facilities, research computing facilities and observatories. In addition, NIST will award another $60 million in grants to proposals that were submitted in fiscal 2008 but not funded.

  • Rural Community Facilities Program

    The Recovery Act provided $1.1 billion to the Department of Agriculture to make loans for rural areas and towns of up to 20,000 people to develop "essential community facilities." The department says units of local government, including education institutions, can use the money for facility acquisition, construction, renovation, or the purchase of equipment and furnishings. In addition to the direct loans, the department also has $61 million available in grants for projects in communities with smaller populations and lower incomes.

  • Energy Efficiency Block Grants

    The Department of Energy has $3.2 billion for grants to states and local governments. The money can be used for "energy efficiency and conservation programs and projects community wide, and renewable energy installations in or on government buildings," the department says.

  • State Energy Program

    The U.S. Department of Energy has received $3.1 billion in recovery funds for this program, which awards grants to states for energy-efficiency and renewable-energy projects. The types of projects that would receive grants include state and local building retrofits that are ready to start with additional funding; and programs that incorporate sustainable strategies, such as performance contracting.

Zero interest stirs interest

To get a sense of how much Somersworth, N.H., welcomes the Qualified School Construction Bonds that will soften the financial impact of building a new elementary school, one has to understand how difficult it was for the city to get to the point where people would support such a project.

The people in Somersworth knew they had to address the inadequate conditions at Hilltop Elementary, but like a lot of communities trying to make ends meet, they kept putting off the hard decisions.

State officials tried to force the city to act in August 2007. Two weeks before classes were to begin, the state fire marshal ruled that the second and third floors of Hilltop had significant fire-safety problems and had to be closed.

School officials scrambled to acquire portable classrooms to begin the school year on time. While the community debated whether Hilltop could be renovated, the district spent more than $250,000 on portables and additional transportation costs.

The city council, as well as the school board, was required to approve any plan for a new school. In December 2007, the council approved the purchase of a site. The school board concluded that even if safety issues were resolved, Hilltop, a 25,000-square-foot facility built in 1927, could not be renovated or expanded to become an effective 21st-century learning space. In June 2008, the board approved a $19.9 million plan for a 74,300-square-foot, K-5 elementary school.

And the debate went on. The city council in September 2008 voted 5-4 in favor of the project, but a two-thirds majority was needed for approval. In January 2009, Lyonel Tracy, the commissioner of education in New Hampshire, delivered a tongue lashing in a letter to Somersworth Mayor Michael Micucci:

"I am disappointed by your comment that some in the community do not see a need to move forward. How can that be when the State Fire Marshal has found it necessary to close two-thirds of the building? The Hilltop School building is not safe for your children to occupy …. The continued lack of action by the City Council is disturbing. Something must be done."

And, finally, something was done. The city council approved the plan in February, but not without misgivings about spending $19.9 million. So when the state awarded Somersworth the zero-interest bonds, much of the anxiety about moving forward was eased, Soule says.

"This is such an opportunity for us," she says. "This will allow us to expand and have enough space for years to come."

Soule expects the new elementary to open in 2011.

Build America

For schools and universities with construction projects already in the works, Build America Bonds enable them to get a better deal on the bonds they are selling.

Education institutions using the program receive a federal subsidy equal to 35 percent of the interest costs of the bonds. In effect, the subsidy results in a lower interest rate for school systems while making the bonds more attractive for buyers.

The Olathe (Kan.) district used the Build America Bond program in May to sell $95 million in bonds, says Gary Diener, Olathe's executive director of business and finance.

Among the projects those bonds will help pay for are a new junior high, and for additions at all four district high schools so that the campuses can accommodate ninth-graders.

In South Dakota, the Board of Regents has approved the sale of $90 million in Build America Bonds to pay for projects at four campuses, says Janelle Toman, director of information and institutional research for the regents. Those include a new residence hall and an expansion of the student union at South Dakota State University in Brookings; a new residence hall and a student wellness center at the University of South Dakota in Vermillion; renovations of residence halls and a student center at the South Dakota School of Mines and Technology in Rapid City; and a residence hall renovation at Northern State University in Aberdeen.

  • Read the "First in line" sidebar for information on how the San Diego Unified School District sold the first Qualified School Construction Bonds as authorized by ARRA.
  • Read the "Yes, you may — but maybe you shouldn't" sidebar for information on the U.S. Education Department's updated guidelines for local education agencies looking to use Education Stabilization funds for new construction.

Kennedy can be reached at mkennedy@asumag.com.

First in line

The San Diego Unified School District achieved the distinction in April of becoming the first school system to sell Qualified School Construction Bonds as authorized in The American Recovery and Reinvestment Act.

As one of the largest districts in the nation with more than 110,000 students, the economic stimulus package gave the San Diego district the authority to issue $38.8 million in the zero-interest bonds.

The bonds will pay for some of the $2.1 billion construction program known as Proposition S, which voters approved in November 2008.

Yes, you may — but maybe you shouldn't

When the economic stimulus package was approved, the U.S. Education Department guidelines stated that local education agencies (LEAs) were allowed to use Education Stabilization funds for new construction. But in May, the department revised its guidelines to say, "Yes, but … "

"An LEA … may use the funds to support the construction of new school buildings," the Education Department stated. "However, the Department discourages LEAs from using Education Stabilization funds for new construction because this use of funds may limit an LEA's ability to meet other essential needs or implement necessary reform initiatives."

The department makes a distinction between new construction and modernization. It is not discouraging school systems from using stabilization funds for modernization, renovation or repair.

The statement also warns states and school systems that Education Secretary Arne Duncan will take into account whether they have used stabilization funds for new construction when he decides who will get some of the $5 billion in competitive grants under his discretion.

The Education Department plans to conduct a competition among states for a $4.35 billion "Race to the Top" fund to improve education quality and results. Another $650 million will be available through the "Invest in What Works and Innovation" fund. Districts and non-profit groups with a strong track record of improving education will compete for those funds, the department says.